NAIROBI (Xinhua) -- A plan by Kenya to impose 16 percent value added
tax (VAT) on petroleum products in the third quarter of this
year would push up inflation to at least 8 percent, according to
analysts.

The taxation, which
would start in September, is expected to add some 0.17 U.S.
dollars on the cost of every litre of kerosene, diesel and
petrol.

Treasury Principal
Secretary Kamau Thugge said the move was part of a deal between
the government and the International Monetary Fund two years ago
to help reduce budget deficit. It is expected to earn the
government at least 703 million dollars in revenue annually.

“Going forward,
upward pressure on the inflation rate is likely to come from
fuel and transport prices as the Treasury plans on imposing 16
percent VAT on petroleum products. We expect inflation rates for
2018 to average 7.5 percent, which is the upper level of the
government target range of between 2.5 percent and 7.5 percent,”
Cytonn, a Nairobi-based investment firm, said in a note on
Monday.

Inflation rate for
February declined to a four-year low of 4.5 percent, from 4.8
percent in January, according to the Kenya National Bureau of
Statistics.

The government has
in the last months accelerated both domestic and external
borrowing to fill budget deficit and undertake development
projects. Domestic borrowing has mainly been used for budgetary
support, with the debt currently standing at 23 billion dollars.

The government is
currently ahead of its domestic borrowing target for the present
fiscal year, having borrowed 226 million dollars, against a
target of 198 million dollars.